Tatiana Bailey: Fight against inflation is making progress | Economy

Last week's consumer price index data shows that the US continues to make progress on inflation. In July, we fell below the 3% threshold with inflation at 2.9% year-over-year. Let's look at the breakdown.

Both the headline CPI and the core CPI, which excludes the more volatile components of food and energy, are well below their 2022 highs. If we annualize just the core CPI data from the last three months, we are now at sub-2% inflation.

Gasoline prices and used car and truck prices have pulled overall prices down over the past year. However, auto insurance and lodging prices have put upward pressure on prices. The average cost of auto insurance in the U.S. has increased by about 25%, largely because most cars now have more electronics and other technology built in that make repairs more complex and expensive.

Likewise, economists have expected a significant drop in housing costs, but purchase and rental prices are not moving enough to make a significant difference. On average, existing home prices in the U.S. are still up about 5% for the year.

Lower interest rates will benefit real estate prices, but the price of an average home in the U.S., which has increased by about 40% since 2019, will not change due to underbuilding in recent years and demographic trends.

And that brings us back to the price level, which is on average about 20% higher in the US than it was in early 2020.

The progress we have made on inflation makes it almost certain that we will see a rate cut in September. Some experts are even calling for a half-percentage point cut rather than a quarter-point cut due to some slowdown in the labor market, which I do not currently share. But we will have more data by then and I will keep you updated.

Tatiana Bailey is the executive director of the nonprofit organization Data-Driven Economic Strategies.